Delhi High Court on GST confiscation delays and provisional release under Section 67(6) and Rule 140

The Delhi High Court, in PHX Electronics Pvt. Ltd. Vs Commissioner CGST And Central Excise, examined delays in adjudicating a confiscation Show Cause Notice (SCN) issued under Section 130 of the Central Goods and Services Tax Act, 2017 (CGST Act) and highlighted an important policy issue relating to provisional release of seized goods under Section 67(6) read with Rule 140(1) of the Central Goods and Services Tax Rules, 2017 (CGST Rules).

Rather than deciding the dispute on merits, the Court focused on:

  • Ensuring time-bound disposal of an old SCN involving seized electronic goods; and
  • Pointing out an inconsistency between the enabling provision for provisional release in the CGST Act and the limited mechanism contained in the CGST Rules, particularly affecting goods that rapidly become obsolete, like electronics.

Case background and seizure of goods

Search by DGGI and seizure of excess stock

A search operation was carried out by the Directorate General of Goods and Services Tax Intelligence (DGGI) at the premises of PHX Electronics Pvt. Ltd.. During this search:

  • The officers allegedly found physical quantities of televisions and motherboards in excess of the quantities recorded in the books.
  • On this basis, the excess stock was seized, treating it as unaccounted goods.
  • The SCN that followed proposed confiscation of these goods, which were valued at ₹1,34,43,410.

The confiscation was proposed by invoking Section 130 of the CGST Act, which provides for confiscation in certain circumstances, including situations where goods are believed to be involved in evasion of tax or contravention of statutory provisions.

Issuance of SCN and jurisdictional confusion

The impugned SCN, dated 18 March 2019, was issued under Section 130 of the CGST Act. According to the assessee:

  • The SCN was made returnable before the Assistant Commissioner, Laxmi Nagar Division.
  • However, by a subsequent letter dated 9 May 2019, the Laxmi Nagar Division stated that the matter actually fell within the jurisdiction of the Gandhi Nagar Division.

This jurisdictional confusion contributed to the stagnation of proceedings. Up to the stage when the writ petition was heard, the assessee had not filed any reply to the SCN, in part because of this uncertainty.

Proceedings before the Delhi High Court

Writ petition under Article 226

The assessee approached the Delhi High Court under Article 226 of the Constitution of India, challenging the SCN mainly on the ground of:

  • Delay in adjudication;
  • Lack of clarity regarding the competent adjudicating authority; and
  • The consequential prejudice caused due to prolonged seizure of electronics that lose commercial value over time.

The hearing was conducted through hybrid mode, meaning both physical and virtual participation were possible.

Response of the Department on adjudication

On an earlier hearing date, 12 December 2025, the Court had asked the Department’s counsel to obtain instructions regarding the manner in which the SCN would be proceeded with.

At the subsequent hearing:

  • Counsel for the Department informed the Court that the Laxmi Nagar Division of the CGST Department was ready and willing to adjudicate the SCN within a fixed timeframe.
  • This effectively resolved the earlier jurisdictional dispute at the administrative level, with Laxmi Nagar Division accepting responsibility to complete adjudication.

Stand of the assessee on time-bound directions

Counsel appearing for the assessee stated that:

  • The assessee was prepared to file a reply to the impugned SCN;
  • However, this willingness was conditional on the Court laying down strict, time-bound directions for adjudication.

The logic put forth was that the seized items comprised electronic goods (televisions and motherboards), which:

  • Tend to become technologically outdated; and
  • Lose economic value quickly if kept under seizure for extended periods.

The Court took note of this commercial reality while framing directions.

Statutory provision: Section 67(6) of CGST Act

A critical legal aspect raised before the Court concerned the provisional release of seized goods. The Court examined Section 67(6) of the CGST Act, which provides: